Federal Express employees played Santa Claus, continuing to deliver on Christmas Day.  A combination of bad weather in the Memphis area and a late surge of online orders spawned delivery delays.

No news was good news for UPS.  Unseasonably warm weather in the densely populated northeast helped the package delivery giant make its holiday benchmarks, despite significantly increased demand.   According to Zacks, "United Parcel preponed its order taking date by a day to Dec 21. The new policy also helped the express carrier to achieve on-time delivery rate between 97% and 98% this festive week. However, the company failed to match up to its regular delivery rate of 98% to 99%.

MasterCard reported, "U.S. e-commerce sales rose roughly 20% year over year between Black Friday and Christmas Eve. That compares with 7.9% for all U.S. retail sales, excluding automobiles."  Of this increase, the New York Times reports that just over half was spent with Amazon, which "steamrolled through 2015, capturing an ever-growing share of United States retail sales. Of every additional $1 Americans spent for items online this year, Amazon captured 51 cents, according to a recent estimate by analysts at Macquarie Research."

In his finalChristmas sermon, Dr. Martin Luther King, Jr., focused on the practical necessity of peace. At the core of his argument was the following description:

We are all caught in an inescapable network of mutuality, tied into a single garment of destiny. Whatever affects one directly, affects all indirectly. We are made to live together because of the interrelated structure of reality. Did you ever stop to think that you can't leave for your job in the morning without being dependent on most of the world? You get up in the morning and go to the bathroom and reach over for the sponge, and that's handed to you by a Pacific islander. You reach for a bar of soap, and that's given to you at the hands of a Frenchman. And then you go into the kitchen to drink your coffee for the morning, and that's poured into your cup by a South American. And maybe you want tea: that's poured into your cup by a Chinese. Or maybe you're desirous of having cocoa for breakfast, and that's poured into your cup by a West African. And then you reach over for your toast, and that's given to you at the hands of an English-speaking farmer, not to mention the baker. And before you finish eating breakfast in the morning, you've depended on more than half of the world. This is the way our universe is structured, this is its interrelated quality. We aren't going to have peace on earth until we recognize this basic fact of the interrelated structure of all reality.

Especially at Christmas, commercial aspects of the supply chain overwhelm just about every other concern.  But such commerce is often motivated by profound needs and great aspirations. Today Fedex employees are out delivering last minute purchases.  What meaning may they also be delivering?  And as Dr. King suggests, even the most quotidian outcomes of our work can have deeper implications.

Amazon's pioneering work in online retail has helped transform US retail.  Along the way, the company has depended upon -- and benefited -- United Parcel Service.  But there is growing concern at the online retailer that the current UPS logistics network is unable to adapt to the demand-pull revolution sweeping retail.

According to the Wall Street Journal: "At Amazon, plans to handle more of its own parcels have accelerated over the past two years, according to current and former executives. Amazon also fears that UPS’s hub-and-spoke system—moving a package from shipper to sorting hub to brown van to your home—is growing obsolete, according to the executives. So the retailer is building regional distribution and package sorting centers, while adding thousands of truck trailers. It is even trying delivery by newspaper carriers."

Technological advancements allowing greater supply chain visibility and rapid adaptability to demand may be undermining the long-time comparative advantage of the hub-and-spoke strategy, allowing for a greater fluidity among and between more and smaller nodes.

Tuesday, December 22 is expected to be the peak shipping day for UPS, FedEx, and many other shippers. Volume is expected to exceed any prior year.

According to the Wall Street Journal: "United Parcel Service Inc., FedEx Corp., and the U.S. Postal Service expected to ship more than 1.5 billion packages combined this year, an increase of more than 10% over last year. But volumes are already higher than forecast, resulting in delivery delays earlier this month as their networks were strained."

It has been difficult to accurately predict -- or adapt to -- the dramatic shift in online purchasing, especially as retailers promise to fulfill delayed purchases.

According to Motely Fool, "Retailers like Barnes & Noble, Gap, and J. Crew have set a Dec. 21 order deadline, perhaps challenging the ability of the carriers to come through. Yet they're not the ones pushing the envelope furthest. lululemon athletica, Macy's, and Sears have all promised delivery if orders are made by the 22nd, and Nordstrom even went so far as to set a Dec. 23 deadline. Interestingly, Best Buy, which two years ago had set a Dec. 23 drop-dead date and saw many missed deliveries, set a Dec. 17 deadline this year. While UPS and FedEx will again bear the brunt of the blame if packages aren't delivered on time, it's clear that it's really the retailers who are at fault if all you get in your Christmas stocking this year is a lump of coal."

Yossi Sheffi's recent book on supply chain resilience is having more and more impact.  A recent interview with DC Velocity provides a good, quick overview.

The final question/answer in the interview is, I perceive, especially important to a sustainable strategy of supply chain resilience:

Q: One of the arguments you make in the book is that by looking at your risk, by preparing for risk, you actually strengthen the entire enterprise. Expand on that a bit.

A: For an example, there is Intel. It had to map its entire supply chain. Knowing who the people upstream are, you not only get risk protection—the sense that if something happened to one of them, you know what the implications are—but you also learn more about what's going on in the supply chain. You start understanding your own supply chain a lot better, which always brings good things.

Mapping supply chains is non-trivial.  Complete transparency is a complex undertaking, further complicated by proprietary implications and the advantage of rapid adaptation.  But being explicit about nodes, links, and interdependencies is a fundamental aspect of risk management.

A recent report by Lloyds found, "Mapping supply chains can also help insurers review their entire portfolio, both to look for areas of risk accumulation – where they may want to run scenarios – and to identify areas of opportunity, where little insurance is currently written and there is limited connection with insured risks."  

What is helpful for the insurer is even more helpful for the insured.

Prickly City by Scott Stantis

Chart by Statista as of September 2015

According to the Wall Street Journal, a huge increase in online orders is threatening to, again, overwhelm shipping firms between now and Christmas. According to data analysis, last week the on-time delivery rate for UPS fell from 97 percent last year to 91 percent this year. Given the lack of large weather disruptions, this suggests difficulty managing volume... already.

For the five days -- Thanksgiving through Cyber-Monday -- several data sources suggest a roughly 20 percent increase in online purchases compared to 2014 and about a ten percent decline for in-store purchases year-to-year.

There are also other market signals suggesting surging online consumer demand and tight supply.  According to DCVelocity,

From Nov. 29 to Dec. 5, spot rates for dry vans, the most commonly used form of truck equipment, jumped 6 cents, to $1.77 per mile, DAT said in data made available late yesterday. The load-to-truck ratio, which measures the number of dry van loads per available truck, jumped 32 percent, to 2.8 loads per truck, from 2.1 in the prior week. Last week, van loads posted for booking on DAT's load boards rose 49 percent, about doubling the normal levels for this time of year, which included the first full workweek after the holiday. Truck posts during the December week rose only 11 percent, setting up the surge in prices, according to DAT.

Earlier this year a 3PL executive told me he expected more and more disruption as demand will increasingly exceed the current availability of logistics to deliver.

Allianz has released a new analysis: "Global Claims Review 2015: Business Interruption In Focus". According to the insurance firm:

The greater interconnectivity of the global economy is manifesting itself in increasingly more complex production processes with higher economic values. The end result is more severe business interruption (BI) implications. For insurers this means potentially larger and more complicated losses than in the past. It also means that one event – like a fire at a factory or a flood in one region – can generate many claims from large numbers of companies.

As a result the insurance industry is increasingly requiring the insured party to examine risk across its supply chain and attempt to mitigate any significant vulnerability of business interruption.

Above from DynamicAction Holiday Retail Index

The increasing role of online sales -- and delivery and returns -- is squeezing already thin retail profit margins.  According to a study by IHC, commissioned by a supply chain tech company,

... retailers continue to underestimate the impact of holiday demand on warehouse operations. While most retailers have a goal to ship within a day, the data suggests that orders will climb to roughly 1.6 days to ship during mid-December. Despite the expectation to receive orders in time for the holidays, consumers are extremely price-conscious when it comes to shipping. Willingness to pay for express shipping is down, as evidenced by express shipping decreasing 25% compared to this time last year.

AND

Data revealed that returns are already up 9.3% over 2014 heading into the holidays. Even worse, the amount of profit being returned has jumped 19%, suggesting that customers are returning the more profitable items at a higher rate.

Combine these online trends with the ubiquitous expectation for price promotions (chart above) and finding a net revenue stream is getting more and more difficult.

Online retail is increasingly a struggle between those able to best sustain significant losses in an effort to be the last one standing... or the innovator that finds a sustainable strategic advantage. Supply chain operations is probably one of the prime possibilities for finding/crafting a fundamental transformational 

The Business Continuity Institute and Zurich Insurance have released their analysis of a 2015 survey of supply chain decisionmakers.  Go here for the complete report.

According to the National Retail Federation:

More than 151 million people said they shopped either in stores and/or online over the weekend, according to NRF's survey conducted by Prosper Insights & Analytics. Nearly 102 million people say they shopped in stores over the Thanksgiving weekend, and more than 103 million say they shopped online. Those under 35 were most likely to shop over the weekend.

CNET reported that so-called Cyber Monday "reached $3 billion in sales, up 12 percent from last year... making it the largest online sales day in the US ever."

The increasing strength of online retail is straining -- and driving innovation, competition, and occasional desperation -- across supply networks.

According to the constantly updating IBM Benchmark Survey:

Thanksgiving Day online sales were up 26 percent compared to a year ago. But the average spend per order on Thursday was $123.45, down from $125.25 a year ago. In 2013 the average total purchase on Thanksgiving Day was $132.  Roughly a third of purchases are being made on mobile devices.

As of mid-day on Black Friday tracking suggested a possible decline in year-to-year online sales.

According to CBRE:

Over the past 35 years, global trade has increased by nearly 600%, propelling the growth of logistics hubs in virtually every country around the world.

These hubs are connected via hub-and-spoke systems centered around 30 global logistics hubs—including the likes of Los Angeles, Chicago, Hong Kong, Tokyo, London and Paris—that form the backbone of today’s global supply chain.

However, as emerging markets grow and new centers of production materialize, 20 emerging markets are on the verge of becoming global logistics hubs over the next decade, including South Florida, Bajio, Busan, Suzhou, Berlin and Amsterdam.

These locations warrant close attention from the marketplace, as logistics hubs are typically home to large clusters of distribution facilities that are highly sought after by major real estate investors and logistics operators.

WUMO by Wulff and Morenthaler

According to the Los Angeles Times:

The neighborhoods of West Los Angeles may have gotten it first, but Google's overnight delivery service, Google Express, is now available to everyone in Southern California, from San Diego to Anaheim to Downtown L.A.

With the expansion of the service, customers across Southern California will have the option to sign up for a $95 annual membership, or pay a fee of $4.99 per eligible order to use the service.

Once registered, customers can browse products from different retailers through the Google Express portal and have those products delivered overnight. Residents in West Los Angeles can have certain items delivered the same day.

Borders, natural or legal or otherwise, complicate supply networks. Reducing time-or-space division is one way of describing the goal of supply chain management.  The sudden emergence of unexpected divisions can be especially disruptive.  But in an open system supply networks will tend to be quickly creative in finding a way around.  According to Marketplace, in response to the Paris attacks and the threat of more several European nations are considering long-term reestablishment of border controls that would significantly impact the supply chain.

Recently I received a copy of a study conducted by UPS on the healthcare supply chain.  A global survey asked, among many other things, about the respondents perceptions of contingency planning.  UPS found the answers disconcerting.  Below is an excerpt from their report.

Last week's passage of a House Transportation bill is important to long-term supply chain efficiency and resilience.  According to Politico:

The House's base bill, which passed in a 363-64 vote, authorizes nearly $340 billion for highway and transit program over six years. The original bill would have paid for just three years of funding, but an amendment adopted at the last minute Thursday could add an additional $40 billion, shoring up funding for the life of the bill.

But according to The Trucker, the political "break-through" may be almost too little, too late in terms of what is really needed.

Marcia Hale, president of Building America’s Future, an organization that promotes infrastructure investment, laid it on the line, reflecting many complaints about the need to address the nation’s highway, bridge and transportation network’s condition.

“Congress has a history of kicking the can down the road with short-term funding bills that make it highly difficult for projects — such as road and bridge maintenance, and transit network repairs — to start or continue,” Hale said. “While we see this long-term bill as a positive sign, we still believe that the funding levels outlined (in the bill) are less than optimal, and will hardly make a dent in the massive infrastructure and transportation funding deficit currently facing our country.”

Big changes in consumer purchasing behavior, increasing population concentration, and the new opportunities presented by the expansion of the Panama Canal -- to mention but a few -- converge to present significant transportation challenges for the next thirty-plus years.

A West Coast colleague pointed me to a fantastic collection of maps for the retail grocery industry at Big Think.  Each one is interesting -- though not entirely accurate according to my understanding.  Taken together the collection helps suggest the sort of retail ecology on which the US population depends. Below is the distribution of Target stores.

The Centers for Disease Control and Prevention has confirmed that what seems like a lot of foodborne disease outbreaks really is happening.  The number has nearly tripled over the last twenty years.  Concentration of production, processing, and distribution serves to amplify the impact of many outbreaks.

From a much longer UPS news release on this year's Peak Season:

UPS expects to deliver more than 630 million packages between Black Friday and New Year’s Eve, an increase of more than 10 percent over holiday deliveries last year. This UPS peak holiday shipping period includes an additional shipping day before Christmas versus 2014.

The company plans to deliver about 36 million packages on Tuesday, Dec. 22, up from 35 million last year, and double the normal daily average of 18 million deliveries. Consumers’ preference for ecommerce, coupled with the industry’s most often selected delivery solutions have driven UPS’s peak volume to all-time highs. The company tallied about 17 million deliveries on its peak delivery day just 10 years ago.

Since Christmas falls on Friday this year UPS plans for high daily residential delivery volume throughout the week. The company expects to make a record number of deliveries to residential addresses during the holiday period, up to 60 percent of all package deliveries, versus an average of 45 percent on a full-year basis

In 2010 Forester predicted US online retail would exceed $250 billion by 2014.  Actual numbers came in at just over $304 billion. In mid-2014 Forrester offered the projections shown above.

Last-mile can often be "golden". For many products long-haul is a commodity business. In today's (and probably tomorrow's) tight market for trucking, fleet management is fundamental. But there is not much need or pay-off for mass customization. A case can even be made that such a strategy is non-scalable (so far).

But within twenty-or-so miles of a supply node, customization is almost constant. As more products are increasingly delivered direct to consumers, the needs and potential pay-offs of effective -- systematic -- customization will grow.

UPS and Fedex have clearly benefited from this trend. USPS as well. Uber is targeting the potential. Last week Baird Equity Research suggested that Amazon is beginning to probe (then adapt, then accelerate) operations as a direct-delivery provider.

According to Baird's analysis:

Our assessment of Amazon's broadening fulfillment ecosystem, internal domain expertise, and early initiatives with Prime Now to offer third-party delivery suggests there is evidence Amazon may ultimately pursue more comprehensive third-party services. Similar to the gradual rollout of AWS, we would expect Amazon to introduce competitive transportation and logistics services on an incremental basis, with a long-term focus. Ideal customers for ATL (Amazon Transportation & Logistics) would range from SMBs to enterprise businesses that lack financial resources, expertise, or technology horsepower to manage fulfillment/logistics internally, and with an offering that raises the competitive bar vs. incumbent service providers. Amazon currently operates >165 fulfillment centers worldwide, and is already testing “last mile”delivery of products not sold via Amazon’s websites.

Amazon's stock soared to a new high today on news of modest profits on strong earnings that far outpaced expectations.  Amazon's sales rose 30% over the same period in 2014.

Which was a bit like a poke in the eye for Walmart which one week ago projected profits falling by as much as twelve percent next year as it invests in ecommerce -- especially supply chain enhancement -- and improved customer service.

Thursday the New York Times published a nice comparison/contrast of Walmart and Amazon.  Nothing not already reported by this blog, but a helpful overview.  The shift to online retail is occurring even faster than many predicted.  Amazon's supply chain is optimized for online purchasing and home delivery.  Walmart's supply chain dominated the supercenter age.  Sears commanded telegraph and railways.

According to the Wall Street Journal:

The biggest landlords in the U.S. are being crushed under a mountain of packages, leading one large apartment operator to stop accepting deliveries and others to experiment with ways to minimize the clutter.

The moves are at the center of two colliding trends: an increase in apartment living and a surge in online shopping. The result is a rising tide of packages with no good place to go.

U.S. online retail sales are expected to swell to $334 billion in 2015, up from $263 billion in 2013, according to Forrester Research Inc., a research and advisory firm. Analysts at Forrester expect that number to increase to $480 billion in 2019.

Just wait until Christmas.

According to the MIT Sloan Management Review:

...access to transparent, accurate data is a prerequisite for effective supply chain collaboration and coordination. Lack of transparency is often born from a lack of trust or confidentiality issues. But we are already seeing progressive companies developing novel solutions to this dilemma — such as data “cleanrooms” and digital marketplaces. 

 What we call data “cleanrooms,” often managed by a third party, allow the sharing of sensitive data (for example, consumer demand, product cost breakdown, and asset utilization) in a legal and secure data environment that lets participants better identify and size opportunities for joint value creation.

For a few years now many of us have been talking about how there needs to be a kind of Federal Reserve System for supply chains.  It is sometimes forgotten that the Fed is a sophisticated private-public partnerships.  And especially at the regional level, the private sector is arguably predominant.

What the Fed has done to clarify and manage -- and crucially troubleshoot -- the money supply, another private-public partnership could do for other supplies.

Walmart practically destroyed Sears and transformed the grocery industry by deploying late 20th Century supply chain strategies. It is now competing for the 21st Century strategic high-ground.

On October 14 the Dow Jones Industrials fell over 150 points (and Albertson's held back from its IPO) as Walmart's stock price fell 10 percent and led the retail sector in reporting disappointing results and prospects.  The world's largest retailer has loss 30 percent market value since January.

According to the Wall Street Journal:

For months Wal-Mart executives have subtly made their case that investors should view the company as a growing e-commerce player that happens to be a behemoth. It has asked them to be patient as the retailer, which has half a trillion in annual sales, spends heavily to turn the giant ship around to better compete with Amazon.com Inc. and other faster-growing retailers like Kroger Co. and Costco Wholesale Corp.

Wal-Mart’s “biggest competitor is online and doesn’t care about profits. It’s hard,” said Mr. Yarbrough, referring to Amazon...

Wal-Mart is pitching its stores and massive network of distribution centers as a key strength in its battle with Amazon. In a PowerPoint presentation Wednesday, Mr. McMillon, the CEO, showed investors a slide with pictures of online retailers that have opened brick-and-mortar locations, including Warby Parker and Rent the Runway.

“Here is a key question: Will it be easier for an e-commerce company to build out a massive store network and create a customer-service culture at scale, or are we better able to add digital and supply-chain capabilities and leverage our existing stores?,” he said.

Personal story: Tuesday Amazon did not get me a promised one-day delivery (I am not a Prime member and had paid $60 for the fast service). I complained. Within six minutes I had a seemingly (not really) personalized response and a full refund. I've since received my product. That's a capability that will be very tough to equal. Stand by for a furious fight.

Yossi Sheffi's new book on supply chain resilience should be read by anyone who has ever glanced at this blog. https://mitpress.mit.edu/books/power-resilience

On October 1 Walmart opened a new fulfillment center. According to the company, "The 1.2 million sq. ft. facility in Union City, just south of Atlanta, is the third large-scale e-commerce fulfillment center to open in the U.S. in as many months, and features state-of-the-art automation and warehousing systems."

 According to Reuters:

Competition with online rivals including Amazon.com, which recently surpassed it in market value, has heated up and Wal-Mart has committed as much as $1.5 billion this year to invest in e-commerce. Much of that is going into large-scale warehouses dedicated to fulfilling online orders. It now has five such facilities, from which it says it will be able deliver to 95 percent of country in two days. The facilities - some big enough to house two cruise liners - will enable it to receive, sort and ship packages faster and at a lower cost, Michael Bender, chief operating officer of global e-commerce, said in an interview.

Last week Amazon opened a similar-sized new fulfillment center outside Baltimore.  According to The Sun:

The 1 million-square-foot fulfillment center, which the state and city lured to Baltimore two years ago with an incentive package of more than $43 million, started operations March 30, while still under construction. Now tens of thousands of packages ship to customers each day from the building. The firm also opened a smaller sorting center nearby last October. The bigger building, where Amazon now employs more than 3,000 people, is open 24 hours a day, with staff working in staggered 10-hour, four-day-a-week shifts.

Construction companies for distribution and fulfillment centers say that since the turn of the century the average size of new facilities has tripled to just about 900,000 square feet. As Amazon and Walmart demonstrate, plenty are even larger.

The National Weather Service is forecasting a potentially very strong El Niño Effect for the upcoming Winter and early Spring: "All models surveyed predict El Niño to continue into the Northern Hemisphere spring 2016, and all multi-model averages predict a peak in late fall/early winter."

East Asia and Southern California may experience especially significant effects.  Typhoon Etau's mid-September hit on Japan is seen by many forecasters as a precursor of the potential for extreme outcomes.

A White Paper by one supply chain software firm notes, "The recent flooding from Severe Tropical Storm Etau in Japan is the first significant manifestation of El Niño. It may serve as a wakeup call for CPOs and organizations complacent about the potential El Niño threat to supply chain operations. It is also illustrative of the types of El Niño impacts that organizations can expect and the opportunities for proactive threat mitigation actions moving forward."

Roughly sixty percent of US imports arrive at the Ports of Los Angeles and Long Beach.

Amazon is recruiting 1099-contract drivers to deliver packages within one-hour in a Seattle test-drive. They call the test AmazonFlex. According to Wired:

Flex fits neatly into Amazon’s ultimate goal to own all retail. Over the years, Amazon has built up a massive logistics infrastructure to make convenient deliveries scalable. It’s poured money into building huge fulfillment centers near major metro areas, which has eaten hugely into the company’s bottom line. Now, owning a platform for on-demand workers on top of all that could help the company hammer out streamlined delivery routes using tracking software.

Motley Fool comments, "Amazon.com is constructing massive warehouses in the outskirts of America's biggest cities that could serve as a durable competitive advantage for generations to come."

According to Wired, Amazon aspires to be the dominant set-of-nodes in US (and beyond) retail.  Meanwhile, retail competition caused by Amazon is producing a proliferation of nodes and innovation.  Is the increased system resilience transient?